Blackberry bows out of making its own hardware

Former smartphone giant Blackberry has said it will no longer manufacture its own devices. Instead it intends to outsource hardware making to development partners, although the core focus of its business is firmly on software services at this point.

Quitting manufacturing will allow the company to reduce capital requirements and enhance return on invested capital, said CEO John Chen today (via StreetInsider), reporting its Q2 fiscal 2017 results.

Blackberry had already launched one rebranded third party smartphone handset, the DTEK50, with hardware made by Alcatel — and Google’s Android OS being the software core. So switching entirely to OEM partners is an obvious next step.

Chen described Blackberry as reaching an “inflection point with our strategy”, and said its “pivot to software is taking hold”. He also talked up the company’s financial foundation — thanks to growth in its software business, saying it is “on track” for 30 per cent revenue growth in software and services for the full fiscal year.

“In Q2, we more than doubled our software revenue year over year and delivered the highest gross margin in the company’s history. We also completed initial shipments of BlackBerry Radar, an end-to end asset tracking system, and signed a strategic licensing agreement to drive global growth in our BBM consumer business,” said Chen.

“Our new Mobility Solutions strategy is showing signs of momentum, including our first major device software licensing agreement with a telecom joint venture in Indonesia. Under this strategy, we are focusing on software development, including security and applications.”

Blackberry’s smartphone glory years are now almost a decade behind it, after the company was infamously wrongfooted by the shift to Android and iOS touchscreen, app-centric smartphone platforms. Its own next-gen platform effort, with BB10, came far too late.

Last year the company finally embraced the enemy, launching its first Android-powered handset, the Priv, albeit plus the traditional Blackberry keyboard and with some added security special sauce of its own.

Hardware sales of all these phones have clearly been underwhelming, and the days of any Blackberry-branded devices for consumers are surely almost over.

Highly security conscious business users, such as government departments and segments of the legal industry, may persist for a while in wanting actual Blackberry hardware. But that’s a marginal business — along the lines of specialist crypto phones. And given Blackberry will no longer be controlling the hardware making process itself, it may even lose out to more specialist security hardware players who are going that extra mile.

Commenting on Blackberry bowing out of internal hardware making, CCS Insight’s chief of research, Ben Wood, also questioned the longevity of even third-party made Blackberry devices.

“BlackBerry has succumbed to the pressure so many other phonemakers have faced. It lacks the scale to be competitive in devices and can’t keep producing its own phones indefinitely just to serve a small subset of its clients addicted to its home-grown devices. Having a third party take over manufacturing is sensible however how long that lasts has to be a question mark,” he said in a statement.

“This does not come as a surprise at all,” he added. “BlackBerry had made no secret of the fact that it might shut down its own phone making business. Pushing it out to a third party is a sensible solution but any manufacturer making BlackBerry branded devices will ultimately face the same challenges if it can achieve sufficient scale.”

Also today BlackBerry revealed its CFO, James Yersh, is leaving for personal reasons. Recode reports Yersh will be replaced by Steven Capelli, a longtime executive at Chen’s former workplace, Sybase, an enterprise software and services company.

This post was updated with additional comment and news of the CFO’s departure